OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best is requesting comments from interested parties on the updated draft of a new criteria procedure, “Evaluating Mortgage Insurance.” The updated draft criteria procedure is available in the methodology section of A.M. Best’s website. Written comments should be submitted by e-mail to methodology.commentary@ambest.com by no later than Sept. 25, 2017.
The updated draft criteria procedure continues to focus on A.M. Best’s approach to: 1) rating mortgage insurers and 2) assessing the capital charges associated with the insurance-based credit risk transfer initiatives of the two government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae.
The draft criteria procedure was originally released for an initial comment period on March 17, 2017, which ended on May 1, 2017. A.M. Best appreciates the feedback received during this comment period. In the revised draft criteria procedure, A.M. Best has refined the proposed draft to further increase transparency in light of industry feedback and to reflect ongoing internal review and analysis.
Significant changes to the draft criteria procedure since its March 17, 2017, release include the following:
- Conformance to the building-block approach as outlined in the new draft Best Credit Rating Methodology (BCRM);
- Emphasis on the factor-based approach as opposed to the modeling approach for determining capital charges associated with the GSE-related reinsurance programs;
- Modification of the mortgage loss tables, including associating mortgage losses with various value-at-risk (VaR) levels, as well as with more granular loan-to-value ratios;
- Inclusion of three years of premiums associated with mortgage insurers, as opposed to applying the peak loss amount concept and diminishing premiums by a certain percentage across the life of the portfolio;
- Application of correlations within reserve/premium lines and correlations between investments and mortgage-related reserves/premiums;
- Demonstration of the effect of mortgage-related capital charges on net required capital and Best’s Capital Adequacy Ratio (BCAR) for a well-diversified reinsurer;
- Expansion of the GSE-related examples in order to more clearly demonstrate the techniques used in calculating gross losses and premiums by transaction type and inclusion of approach for non-GSE-sponsored reinsurance transactions.
When submitting comments to the methodology in-box, commenters have the option of requesting anonymity, but not confidentiality. All comments received through the methodology in-box that do not request anonymous treatment will generally be published in their entirety, with attribution to the author/sender at the time of implementation of the criteria procedure.
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